The Underused Housing Tax is an annual federal 1% tax on the ownership of vacant or underused housing in Canada that took effect on January 1, 2022. The tax generally applies to foreign national owners of housing in Canada. However, in some situations this tax also applies to some Canadian owners such as certain partners, trustees, and corporations.
The NOTO office has been making effort to determine if this tax impacts tourism operators in this sector. We do not have an easy answer for you unfortunately. We strongly recommend you reach out to your professional accountants to determine whether or not you may be exempt from this tax.
Although the deadline for filing the UHT return and paying the UHT payable was April 30, 2023 for the 2022 year, no penalties or interest will be applied for UHT returns and payments that the CRA receives before November 1, 2023. Penalties after this date can be up to $5000 per property.
The following residential buildings, along with any common areas, appurtenances and related land, are examples of residential properties for purposes of the underused housing tax:
Commercial Cottages, Cabins & Chalets
Cases Where You May Need to File
Underused Housing Tax Notice UHTN1 lists commercial cottages, cabins and chalets (those that are used by the operator to provide lodging to several unrelated business or leisure travellers at once in separate cottages, cabins or chalets) as examples of buildings that are not residential property for Underused Housing Tax purposes.
The word commercial is meant to mean not a residence. Typically, the operator of commercial cottages, cabins or chalets is engaged in an active for-profit business of providing sleeping or lodging accommodation on a transient or intermittent basis to several unrelated business or leisure travellers at once in separate cottages, cabins or chalets that are located in rural or touristic areas. In addition, the operator actively advertises and holds itself out as being an establishment within the travel and tourism industry, and it is commonly accepted by that industry as being an establishment within it. In short, the establishment was designed and constructed to function like a motel, with the main difference being that the sleeping or lodging accommodation is provided in independent cottages, cabins or chalets, as opposed to being provided in guest rooms or suites.
Please note, the establishment contemplated in the example in Underused Housing Tax Notice UHTN1 is one where the cottages, cabins or chalets are either:
Cottages, cabins or chalets that are situated on distinct parcels or other divisions of real or immovable property that are distant or not touching each other are considered property that is described in paragraph (a) of the definition of residential property.
Any cottage, cabin or chalet that was purposely constructed or converted to be a separate and self-contained set of private living quarters is also considered property that is described in paragraph (a) of the definition of residential property.
Note that a bed and breakfast is not a residential property for purposes of the underused housing tax where the building was purposely constructed or converted to provide sleeping or lodging accommodation on a transient or intermittent basis to several unrelated persons at once in separate rooms (that is, similar to the structure of a hotel, motel or inn).
However, most bed and breakfasts are detached houses and are not structured similar to a hotel, motel or inn. Where this is the case, a bed and breakfast may be a residential property for purposes of the underused housing tax.
The deadline to file is October 31, 2023.